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SA's credit rating remains unchanged

SA's been struggling with poor economic growth, with latest estimates saying it's around 0.5%.

Picture: Facebook.

JOHANNESBURG - Standard & Poor's has decided to keep its rating for South Africa unchanged at triple b-minus, with a negative outlook - avoiding junk status - a huge relief for the country.

The decision to keep the rating unchanged means that Finance Minister Pravin Gordhan, along with the Treasury, business and unions, have done enough to keep the country from falling into junk status.

This means that the government has been given enough time to promote growth, stabilise expenditure and improve the country's overall outlook.

In November last year, most ratings agencies forecasted growth over one percent for this year. However, a number of factors have seen this target fall away.

The country's been struggling with poor economic growth, with latest estimates saying it's around point-five percent.

Economists earlier warned a downgrade by S&P Global to junk status could have had a number of consequences for the country.

Earlier this week, economist Dieter von Fintel said, "The real concern for an ordinary South African is what it is going to do for interest rates, what it is going to do for the exchange rate and what's it going to do for investor confidence."

Market analyst Jana van Deventer said junk status would have forced the Reserve Bank's hand to raise interest rates.

"Potentially even higher than what we otherwise would see were it not for the downgrade."

The bank recently decided to keep interest rates at 10.5 percent, but some economists are expecting another increase later this year.

WHAT A RATING DOWNGRADE WOULD HAVE MEANT FOR THE MAN IN THE STREET

The government would have had to pay more to borrow and taxes would have go up. It would impact on inflation and ultimately middle and lower income earners would have been be the hardest hit.

As the cost of living and inflation rises, the Reserve Bank would have had no choice but to hike rates.

This has been averted for now, but ratings agency Fitch will deliver its decision on Wednesday.

Meanwhile, Treasury has welcomed the decision by S&P Global Ratings to keep its investment-grade credit rating because it will give government more time to demonstrate the concrete implementation of reforms

LISTEN: How long does it take to recover after a downgrade to junk?

WEAK RAND

The rand has recovered dramatically. At around 6pm on Friday, the rand was trading at around R15, 11 to the dollar, R21,93 against the pound and R17,11 to the euro.

The currency tumbled to its worst ever level of 17.995 to the US dollar in January, a month after Fitch lowered South Africa's rating to one step above sub investment grade.

The weaker rand, combined with sluggish economic growth estimated at less than one percent this year, rising interest rates, low levels of consumer and business confidence.

Flows of foreign direct investment (FDI) into South Africa fell 64 percent, or R40 billion, between 2014 and 2015, according to data from the South African Reserve Bank.

The slide in FDI will continue due to the weak exchange rate triggering higher inflation and borrowing costs that eat away at both investor profits and business confidence, analysts said, warning that political upheavals had also cast a cloud.

In this year's local government elections, the African National Congress is expected to face a strong challenge from opponents seeking to capitalise on what they see as his economic and political missteps.

In December, President Zuma changed SA's finance minister twice in a week, sending the rand plummeting.

He survived an impeachment vote in April called after the Constitutional Court said he breached the law by ignoring an order to repay some state funds spent on renovating his home.

Meanwhile, some companies, including cement maker PPC and Nampak are setting up new business units in other parts of Africa, seeking higher returns and protection against the weak currency.

WATCH: A ratings downgrade explained in 60 seconds

Additional reporting by Reuters.

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